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Lloyds buys MBNA credit card business for £1.9 billion

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Lloyds this morning announced it has bought the MBNA credit card business from Bank of America for £1.9 billion.

MBNA holds £7 billion of UK credit card debt, and will boost Lloyds presence in this market to £16 billion, taking it from a 15% to 26% market share.

The deal price assumes £240 million of future PPI claims on the MBNA credit card book, which Lloyds says is the maximum it will be liable for under the terms of the deal.

Lloyds shares rose 1% in early morning trading.

Laith Khalaf, Senior Analyst at Hargreaves Lansdown commented:

‘Lloyds is backing itself despite the uncertain economic outlook, and this deal will mean the bank has now cornered a quarter of the UK credit card market.

This does mean a special dividend for 2016 has become less likely, but at the same time the additional earnings from the credit card book bolster the dividend-paying prospects of the bank in years to come.

The acquisition will allow Lloyds to boost its net interest margin, which is pretty valuable against a backdrop of such low interest rates.

The deal owes some thanks to the FCA deadline on PPI claims, which has given some measure of certainty to the level of compensation MBNA will have to pay out, providing both parties with a more solid platform for negotiation.’

(Source: Hargreaves Lansdown)

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